Hollywood talent leery of stock-option deals, but agencies enthusiastic

Cash money, not equity, is what powers the entertainment industry. Especially when it comes to talent. In a possibly apocryphal but illustrative anecdote, legendary bluesman Albert King reportedly refused to leave the stage until he had cash in hand from the concert promoter, presumably because he'd been cheated out of so many deals in the past. Studio accounting has an only slightly better reputation than that of the music industry when it comes to being, ahem, creative. Hence it's no surprise that when negotiating venture funding for Funny Or Die, Will Ferrell reportedly wanted to know what his upfront payout would be, according to Sequoia Capital's Mark Kvamme in comments to the New York Times. Which is one reason why private equity efforts to fund traditional film and television production have yet to pan out. Better to get your money upfront and walk away in case the project is a disaster. So how is Valley money changing Hollywood business models?

Primarily through new ventures that not only go around the studios, but around traditional distribution entirely. While the networks and studios all have subsidiaries producing content strictly for online distribution, the talent contracts are still typical pay-as-you-go deals (and meager at that). Agencies have been most enthusiastic about new busines models — probably because they're already realizing efficiencies in terms of talent discovery using the Internet, which allows them to get around scouts and managers and reach new faces easily and cheaply.

A number of agencies have begun embracing new models. 60frames, an online video startup, took $3.5 million in venture funding and was incubated by the United Talent Agency. Creative Artists Agency is assembling a $200 million venture fund with partner Draper Fisher Jurvetson. International Creative Management is reportedly talking to Qualcomm about raising their own cash. And William Morris has helped back a $500 million SPAC to fund M&A deals, with Ashton Kutcher serving on the board. The draw for the agencies is the ability to own a piece of the company that distributes work from their own talent stables.

The only problem is, that gives them a conflict of interest when negotiating with the studios. Why pitch deals to the studio for the standard 10 percent cut when in-house deals would result in agency fees and back-end profits? And no one knows how this will shake out for talent. As LivePlanet producer Sean Bailey pointed out to reporter Laura M. Holson, "People in Silicon Valley too want their pound of flesh."

(Photo by Getty/Sharon Dominick)